Freelancers' Questions: Should I stop work until my invoices are paid?

Freelancer’s Question:
I’ve been informally freelancing for a firm for 6 months but every weekly
invoice is paid very late. They always say they haven’t been paid so can’t pay
me.

I haven’t used late payment law but plan
to tell the client next week that I will cease working until all outstanding
invoices are paid, which I believe I'm within my rights to do.

But they’re likely to ask me to hand over the work I've done to date, which I
want to avoid as this is work they've essentially still not paid me for. So
would it be wise to stop work and withhold the intellectual property
until I’m paid? Please note, although I have time sheets recording hours
worked, there is no
written contract, just a series of emails agreeing the work.

Expert’s Answer: It’s
never fun to deal with a client who consistently pays late. If the client is
slipping further and further into the red, with every invoice submitted, it’s sensible
to limit your exposure to a potential bad debt.

As you probably know, your main problem is the lack of a
formal contract or agreement. Normally, your contract would define the scope of
the relationship, and provide some guidance as to exactly who owns any intellectual
property. It would also define the point at which ownership of that
intellectual property passes from you to the client.

We’re credit controllers by trade, so we aren’t qualified to
provide legal advice. However, our understanding of UK copyright law is that the
‘author’ or ‘creator’ automatically acquires copyright to any works. For the
purposes of this article, we will assume that you retain ownership of the intellectual
property until it is paid for.

Fortunately, you’re in a strong negotiating position. You’re
already on-site with this client, and you’re in possession of intellectual
property it wants.

We would suggest that you have two instant options open to
you.

Option One –
Terminate the services and withhold the IP

This is the option you reference in your question. It’s the
most straightforward, from a practical perspective. You would need to notify
the client in writing that it is in default of the agreed payment terms, and as
such, your services are
being suspended with immediate effect.

Make it very clear that this a last resort, and say that
services will not recommence until all outstanding invoices are paid.

This option also gives you the opportunity to levy late
payment charges on every invoice currently outstanding. You can also add
charges to previous invoices that were paid beyond the agreed terms, if you
want to.

With this option, you retain the intellectual property until
you are paid in full. (“In full” means the client must pay all applicable late
payment penalties, as well as the original amount). When you receive payment, release
the intellectual property to the client, and go your separate ways.

·
The
advantage
with this approach is that you immediately stop increasing your risk. You also send
a clear signal to the client that you have reached your limit, both
professionally and financially. The client may not like it, but it will respect
your decision.

·
The
disadvantage
is that you will probably kill off any goodwill that exists. You may also find
yourself in a ‘catch 22’ situation if the client refuses to pay until you
release the intellectual property. In some cases, the client might claim it has
a claim against your company for an alleged breach of contract.

Option Two –
Negotiate a ‘new deal’ for payment

With this option, you’d have to secure a new deal for
payment that reduces your existing risk and avoids allowing any further credit.

Ideally, this means notifying your client that the situation
has become untenable. You’d say “I am
approaching the point of terminating
my services,” but because the client is a valued customer, you would also say
that you’d “like to reach a suitable compromise.”

Under the terms of the agreement, the client would need to pay
all future invoices on
a pro-forma basis. So you’d be paid for each week
before work commences. This
advance payment reduces your risk moving forward.

In addition, you’d need an agreement to cover payment of the
outstanding debt. As an
absolute minimum, we’d suggest the
client should pay 50% of a
weekly invoice, along with your new weekly payment. It would be preferable
if the client paid double – i.e. one new invoice and one old invoice - until
the account is brought back in to good standing.

·
The
advantage
with this option is that you retain your engagement with the client. You can continue
to supply them, risk-free, while they pay off the arrears. Also, you may gain
some goodwill by compromising during their time of need, rather than simply
withdrawing your services.

·
The
disadvantage
is that your continued presence on-site gives them scope to try and renege on
the agreement. If you suspect the client is dishonest, think carefully before negotiating.

Remember: if they don’t agree to option two, you can always
revert to option one.

Final Thoughts

Consider purchasing a credit
report on the client, prior to making a decision. If the company has filed
recent accounts and looks financially stable, you then have some reassurance if
you want to try to reach an amicable resolution.

Conversely, if the credit report shows they are high risk (or
already show a CCJ
from another unpaid supplier), then you know ‘the writing is on the wall’ and
can act to protect your own cashflow. Good luck.